Fuwei Films Announces Fourth Quarter and Full Year 2007 Financial Results

BEIJING, April 14 /Xinhua-PRNewswire-FirstCall/ -- Fuwei Films (Holdings) Co. Limited (Nasdaq: FFHL) (''Fuwei'' or ''the Company''), a manufacturer and distributor of high-quality BOPET plastic films in China, today announced the financial results for the fourth quarter and full year ended December 31, 2007.

''We are pleased to report a solid year of decent top-line growth and further buildup of our research team,'' said Xiaoan He, Chairman and CEO of Fuwei Films. ''Our exports saw strong expansion, due to our enhanced efforts to market overseas. And we continued to grow sales of higher-margin specialty films, even though we have been facing a challenging operating environment since the second half of 2007, exemplified by higher raw material costs and the capital shortfall for our Third Production Line of thick films.''

Mr. He continued, ''Going forward, we will keep using our newly strengthened R&D platform and our Trial Production Line to commercialize products. Finally, we believe that our enhanced foreign marketing campaigns are positioning us to yield encouraging results in new markets.''

Fourth Quarter Financial Results

Revenues for the fourth quarter of 2007 were US$16.3 million (RMB 121.5 million), compared with RMB 121.5 million in the fourth quarter of 2006. Revenues of specialty films in the fourth quarter 2007 rose 8.4% from same period 2006 to US$5.7 million (RMB 42.5 million), or 35.0% of total revenues.

Revenues from overseas in the fourth quarter of 2007 increased 1.5% from same period 2006 to US$3.2 million (RMB 23.5 million), or 19.4% of total revenues.

Gross profit for the fourth quarter of 2007 was US$2.6 million (RMB 19.3 million), compared with RMB 27.8 million in same period 2006. The Company generated a gross margin of 16.0% in fourth quarter 2007, versus 22.9% in same period 2006. The decrease in gross margin was primarily due to increased raw material consumption on the Rental Production Line. In addition, since the second half of 2007, the decrease of export tax rebates rate also has contributed to the lower gross profit.

Operating expenses in the fourth quarter of 2007 was US$1.7 million (RMB 12.4 million), compared with RMB 5.5 million. The increase was mainly due to: 1) higher costs of professional services related to being as a public company; and 2) administrative expenses such as wage increases. Selling expenses in fourth quarter 2007 decreased 8.1% from fourth quarter 2006 to US$471,000 (RMB 3.4 million). Administrative expenses increased to US$1.3 million (RMB 10.0 million) from RMB 2.6 million.

Net income for the fourth quarter of 2007 decreased to US$0.2 million (RMB 1.0 million), or diluted EPS of US$0.01 (RMB 0.08), from RMB 21.5 million, or diluted EPS of RMB 19.5 in the same period of 2006.

Full Year 2007 Financial Results

Revenues for the year 2007 rose 2.9% from 2006 to US$59.1 million (RMB 449.4 million). The increase in net sales was primarily due to increased sales from the Rental Production Line.

Revenues of specialty films in 2007 rose 6.1% from 2006 to US$22.4 million (RMB 170.0 million), or 37.8% of total revenues. The increase was largely attributable to the heightened popularity of high-end specialty films like heat-sealable films, high-gloss films, as more customers opted for them to enhance their product image. The growth in specialty films also benefited from exports to Korea, the United States and Europe.

Revenues from overseas in 2007 soared 23.9% from 2006 to US$15.0 million (RMB 114.2 million), or 25.4% of total revenues.

Gross profit for 2007 was US$13.1 million (RMB 99.8 million), compared with RMB 102.5 million. Gross margin was 22.2%, as opposed to 23.5% in 2006. The decrease in gross margin was primarily due to increased consumption by the Rental Production Line. In addition, since the second half of 2007, the decrease of export tax rebates rate also has contributed to the lower gross profit.

Operating expenses for 2007 were $4.7 million (RMB 35.6 million), compared with RMB 24.5 million in 2006. The increase was mainly due to higher costs of professional services related to being a public company, as well as due to higher administrative expenses, such as wage increases. Selling expenses decreased 8.5% to $2.0 million ($15.1 million) from 2006, while administrative expenses increased to $2.7 million (RMB 20.5 million), from RMB 8.0 million in 2006.

Net income for the year 2007 decreased to US$6.2 million (RMB 47.3million), or diluted EPS of US$0.48 (RMB 3.62), versus RMB 67.7 million, or diluted EPS of RMB 61.4 in 2006.

Total cash and cash equivalents as of December 31, 2007 were US$4.2 million (RMB 30.9 million) as compared with RMB 249.9 million as of December 31, 2006.

Total shareholders' equity increased to US$70.3 million (RMB 512.5 million) as of December 31, 2007 from a total shareholders' equity of RMB 465.9 million as of December 31, 2006.

As of December 31, 2007, the Company has 13,062,500 basic and diluted total common shares outstanding.

The Trial Production Line

Fuwei began the construction of a Trial Production Line which is capable of producing BOPET films with thickness of 12-50 m and has an annual designed capacity of 1,500 metric tones. The Trial Production Line has finished the equipment installation stage at the end of 2007 and currently is being used for research and development purpose. It is expected to strengthen Fuwei's competitive advantage by allowing more focused research and development of multi-layer BOPET films.

Overseas Marketing Expansion

Fuwei has also reinforced its marketing and sales efforts overseas. On October 25, 2007, the Company opened a marketing office in Osaka, Japan, to focus on market expansion and customer service for BOPET films in Japan. Research indicates Japanese customers are in favor of top-quality BOPET films and world-class after-sales support. By establishing an office in Japan, the Company aims to familiarize itself with the local market and increase the promotion of Fuwei's brand. Fuwei is also targeting the Korean market for beneficial results.

Research & Development Initiatives

Fuwei has been strengthening its R&D capabilities. Its R&D team now has 13 senior researchers and technicians, including one Ph.D and seven masters degree-holders. In addition, the Company recruited five foreign consultants with extensive expertise in the BOPET industry. On the intellectual property front, Fuwei received four patents from the Chinese authorities, with three more pending.

Appointment of New CFO

On April 11, 2008, the Company appointed Mr. Xiuyong Zhang as the new Chief Financial Officer. Mr. Zhang has been a director of the Company since November 2007. He has also been a director of Fuwei's operating subsidiary, Fuwei Films (Shandong) Co., Ltd., since July 2004 and Vice President for Finance there since January 2005. He has more than 10 years of experience in accounting, finance and investments, and holds a Certified Public Accountant title issued by the Ministry of Finance in China. He has received the Professional Certification in Laws from China University of Political Science and Law and China Central Radio and TV University.

Strategic Outlook

In 2008, the Company aims to use the newly strengthened R&D team and make full use of the Trial Production Line to develop innovative materials and techniques for high-end specialty films, such as the in-line coating film for food packaging, the DFR base film for electronic industry, the white film for outdoor billboards, and the soft embossable, holographic film for anti-fraud purposes.

Some of the new products as described above, such as the white film, are attractively viewed by overseas customers. The Company is currently positioning itself for an market adjustment phase overseas. By adjusting its export product composition, Fuwei is seeking to achieve both stronger sales and higher margins in foreign markets, especially Japan and Korea.

Conference Call Information

The Company will host a teleconference today, Monday, April 14, 2008, at 8:30 a.m. EDT / 8:30 p.m. Beijing time to discuss the quarterly results. To participate in the call, please dial +1 877-407-9205 in North America, or +1 201-689-8054 internationally, approximately 10 minutes prior to the scheduled call start time. The call is being simultaneously Webcast and can be accessed on the Fuwei Films Website at http://www.fuweiholdings.com . Please visit the Web site at least 15 minutes prior to the scheduled call time to register for the Web cast and download any necessary audio software.

A replay of the call can also be accessed via telephone from 12:00 p.m. EDT on Monday, April 14, 2008, through 11:59 p.m. EST on Tuesday April 29, 2008, by calling +1-877-660-6853 in North America, or +1-201-612-7415 internationally, and entering the following access codes: Account #: 286 and Conference ID: 274493. A Web cast replay of the call will also be made and can be accessed on the Fuwei Films site at http://www.fuweiholdings.com .

About Fuwei Films

Fuwei Films conducts its business through its wholly owned subsidiary Shandong Fuwei Films Co., Ltd. Shandong Fuwei develops, manufactures and distributes high-quality plastic films using the biaxial oriented stretch technique, otherwise known as BOPET film (biaxially oriented polyethylene terephthalate). Fuwei's BOPET film is widely used to package food, medicine, cosmetics, tobacco and alcohol, as well as in the imaging, electronics, and magnetic products industries.

For more information about the Company, please visit the Company's website at http://www.fuweiholdings.com .

Safe Harbor

This press release contains information that constitutes forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements involve risk and uncertainties that could cause actual results to differ materially from any future results described by the forward-looking statements. Risk factors that could contribute to such differences include those matters more fiscally disclosed in the Company's reports filed with the Securities and Exchange Commission. The forward-looking information provided herein represents the Company's estimates as of the date of the press release, and subsequent events and developments may cause the Company's estimates to change. The Company specifically disclaims any obligation to update the forward-looking information in the future. Therefore, this forward-looking information should not be relied upon as representing the Company's estimates of its future financial performance as of any date subsequent to the date of this press release.

The forward-looking statements included in this press release are subject to risks, uncertainties and assumptions about our businesses and business environments. These statements reflect our current views with respect to future events and are not a guarantee of future performance. Actual results of our operations may differ materially from information contained in the forward-looking statements as a result of risk factors some of which are include, among other things, competition in the BOPET film industry; growth of, and risks inherent in, the BOPET film industry in China; uncertainty as to future profitability and our ability to obtain adequate financing for our planned capital expenditure requirements; uncertainty as to our ability to continuously develop new BOPET film products and keep up with changes in BOPET film technology; risks associated with possible defects and errors in our products; uncertainty as to our ability to protect and enforce our intellectual property rights; uncertainty as to our ability to attract and retain qualified executives and personnel; and uncertainty in acquiring raw materials on time and on acceptable terms, particularly in view of the volatility in the prices of petroleum products in recent years.

SOURCE Fuwei Films (Holdings) Co. Limited